The first full jobs report published during the Trump Administration came out Friday morning and I give it a B+.
The economy added 235,000 new jobs in February, slightly above expectations and about in line with January’s gains. Private sector jobs grew by a similar amount. The unemployment rate slipped to 4.7%.
Two things particularly impressed me about the report. First, job growth was strong across the board—not just in the usual suspects, health care and professional & business services, the two stalwarts of the service economy.
Construction—construction!—led the pack with 58,000 new jobs. Maybe February’s uncommonly warm weather gave early spring fever to home buyers and builders. Two wildly different industries—manufacturing and private educational services—also showed big job gains. Only retail, which is in the midst of a big contraction, showed a substantial decline of 26,000.
And labor force participation rose to 81.7% for the prime-age work force (people between 25 and 54). That was the highest prime-age participation since 2011.
So, is President Trump working some kind of magic? Is it good for investors?
Well, not really, and probably.
Give the president some credit for unleashing the animal spirits on Wall Street: The prospect of less regulation and big tax cuts is enough to get some people salivating. That’s helped consumer and business confidence rise.
Also, as I wrote in MarketWatch this week, conservative doom-and-gloomers who stayed out of stocks during the Obama years are now jumping in with both feet.
That sentiment is not easily defused, especially among the true believers. The president’s agenda would have to suffer a big setback (like the defeat of Obamacare repeal) or we’d have to face a big geopolitical crisis (North Korea, anyone?) for the market truly to reverse course.
The good news about the economy in the jobs report caused stocks to rise modestly Friday. The Dow Jones Industrial Average closed only 100 points shy of 21,000, while the ten-year Treasury note’s yield retreated from its recent high around 2.6%.
But that has a down side. The strong jobs report—with its 2.8% wage increases over the past 12 months—makes a hike in the federal funds rate all but inevitable at next week’s Federal Open Market Committee meeting.
In fact, futures traders are 100% certain the FOMC will raise fed funds by ¼ point when its meeting ends Wednesday. Chair Janet Yellen will hold a press conference afterward.
Right now, investors are counting on the Fed to hike rates three times in 2017. If it winds up doing four or five rate increases—which I still think is unlikely—Wall Street would go back to its spreadsheets and may start selling stocks.